The pound’s decline versus the dollar may force futures traders that are the most bullish in a year on sterling to lower their bets, fueling further depreciation of the U.K. currency, according to Bank of America Corp.
Futures traders increased their wagers that sterling will gain against the U.S. dollar to 25,339 contracts in the week ended May 8, the most since May 2011, figures from the Washington-based Commodity Futures Trading Commission show. They now may “be forced to reduce,” driving the pound down toward its 200-day moving average of $1.5831, MacNeil Curry, a technical strategist at Bank of America Merrill Lynch, wrote in a client note.
“This is a market that in certain respects has defied gravity,” Curry said yesterday in a telephone interview. “As we’ve seen risk-off transpire, this thing has rallied quite significantly; people have gotten longer and longer. That just makes it vulnerable.” Long positions are bets a currency will strengthen.
The pound fell 0.6 percent yesterday to $1.5993 in New York trading and touched $1.5989, the lowest level since April 18. It has lost 1.5 percent since April 30, when it touched an eight- month high of $1.6302.
The U.K. currency has support at $1.6004 and $1.5973, Bank of America Merrill Lynch said. Support is an area on a chart where buy orders may be clustered.
In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.
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